CALGARY, Alberta – Crew Energy Inc. (TSX: CR; OTCQB: CWEGF) (“Crew” or the “Company”), a growth-oriented, liquids rich natural gas producer operating in the world-class Montney play in northeast British Columbia (“NE BC”), is pleased to announce our operating and financial results for the three month period ended March 31, 2023. Crew’s audited consolidated Financial Statements and Notes, as well as Management’s Discussion and Analysis (“MD&A”) are available on Crew’s website and filed on SEDAR at www.sedar.com.
HIGHLIGHTS
- 32,963 boe per day1 (198 mmcfe per day) average production in Q1/23 neared the top end of Crew’s guidance range of 31,000 to 33,000 boe per day, slightly ahead of Q4/22 volumes. Crew realized 16% higher condensate production compared to the same period in 2022, illustrating our ability to rapidly optimize the production mix to maximize value, along with ongoing operational success that supports a planned ramp up in light oil and condensate production during H2/23.
- 155,789 mmcf per day of natural gas production in Q1/23, 79% of total production, generating 51% of revenue.
- 4,643 bbls per day of oil and condensate production in Q1/23, 14% of total production, generating 41% of revenue.
- 2,355 bbls per day of natural gas liquids5,6 (“NGLs”) production in Q1/23, 7% of total production, generating 8% of revenue.
- $74.5 million of Adjusted Funds Flow (“AFF”)2 ($0.46 per fully diluted share3) generated in Q1/23, in line with Q4/22, reflecting strong production volumes and robust combined liquids pricing which helped drive operating netbacks4 that averaged $27.22 per boe.
- AFF2 as a percentage of petroleum and natural gas sales (“AFF Margin”)3 reached a record 74%, highlighting the success of our recently completed two-year growth plan and the strength of our 2023 hedge program.
- $22.2 million of net capital expenditures4 in Q1/23, below our previously forecast guidance range of $25 to $30 million as activity was limited to drilling surface holes on the 4-32 pad and finalizing equipping of wells that were completed in Q4/22, with the remainder invested in facilities, pipelines and other miscellaneous items.
- $52.4 million of Free AFF4 generated in Q1/23, a 265% increase over Q4/22, which supported Crew’s continued deleveraging by enabling a 30% reduction in net debt2 to $105.3 million at quarter-end, with zero drawn on our $200 million credit facility.
- Improved net debt2 to trailing last twelve-month (“LTM”) EBITDA3 ratio which declined to 0.3 times at March 31, 2023, from 0.4 times at year-end 2022.
- $41.4 million in positive after-tax net income ($0.26 per fully diluted share) was realized during the quarter, compared to a loss in the same period of 2022.
- Cash costs per boe4 of $9.40 in Q1/23 represents a two percent improvement over $9.61 per boe in Q1/22, reflecting lower financing expenses.
- Subsequent to quarter-end, Crew redeemed the balance of our $172 million of outstanding Senior Unsecured Notes at par on April 28, 2023, using cash on hand and drawings on the bank line, and also extended our $200 million bank facility maturity to May 2025 with no financial maintenance covenants and no minimum liquidity requirements.
FINANCIAL & OPERATING HIGHLIGHTS
FINANCIAL ($ thousands, except per share amounts) |
Three months ended Mar. 31, 2023 |
Three months ended Mar. 31, 2022 |
|
Petroleum and natural gas sales | 100,681 | 130,432 | |
Cash provided by operating activities | 66,644 | 55,082 | |
Adjusted funds flow2 | 74,517 | 77,660 | |
Per share3 – basic | 0.48 | 0.51 | |
– diluted | 0.46 | 0.48 | |
Net income (loss) | 41,354 | (1,377 | ) |
Per share – basic | 0.27 | (0.01 | ) |
– diluted | 0.26 | (0.01 | ) |
Property, plant and equipment expenditures | 22,161 | 55,361 | |
Net property dispositions4 | – | – | |
Net capital expenditures4 | 22,161 | 55,361 |
Capital Structure ($ thousands) |
As at Mar. 31, 2023 |
As at Dec. 31, 2022 |
||
Working capital surplus2 | 84,386 | 21,844 | ||
Other long-term obligations | (18,223 | ) | – | |
Senior unsecured notes | (171,448 | ) | (171,298 | ) |
Net debt2 | (105,285 | ) | (149,454 | ) |
Common shares outstanding (thousands) | 153,494 | 154,377 |
OPERATIONAL | Three months ended Mar. 31, 2023 |
Three months ended Mar. 31, 2022 |
Daily production | ||
Light crude oil (bbl/d)7 | 71 | 116 |
Condensate (bbl/d) | 4,572 | 3,926 |
Natural gas liquids (“ngl”)5,6 (bbl/d) | 2,355 | 2,856 |
Conventional natural gas (mcf/d) | 155,789 | 159,007 |
Total (boe/d @ 6:1) | 32,963 | 33,399 |
Average realized3 | ||
Light crude oil price ($/bbl) | 84.56 | 107.35 |
Natural gas liquids price ($/bbl) | 38.80 | 48.72 |
Condensate price ($/bbl) | 98.33 | 116.27 |
Natural gas price ($/mcf) | 3.67 | 5.29 |
Commodity price ($/boe) | 33.94 | 43.39 |
Three months ended Mar. 31, 2023 |
Three months ended Mar. 31, 2022 |
|||
Netback ($/boe) | ||||
Petroleum and natural gas sales | 33.94 | 43.39 | ||
Royalties | (4.13 | ) | (2.78 | ) |
Realized gain (loss) on derivative financial instruments | 4.72 | (5.16 | ) | |
Net operating costs4 | (4.02 | ) | (3.50 | ) |
Net transportation costs4 | (3.29 | ) | (3.12 | ) |
Operating netback4 | 27.22 | 28.83 | ||
General and administrative (“G&A”) | (1.14 | ) | (0.96 | ) |
Financing expenses on debt4 | (0.95 | ) | (2.03 | ) |
Adjusted funds flow2 | 25.13 | 25.84 |
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1 See table in the Advisories for production breakdown by product type as defined in NI 51-101.
2 Capital management measure that does not have any standardized meaning as prescribed by International Financial Reporting Standards, and therefore, may not be comparable with the calculations of similar measures for other entities. See “Advisories – Non-IFRS and Other Financial Measures” contained within this press release.
3 Supplementary financial measure that does not have any standardized meaning as prescribed by International Financial Reporting Standards, and therefore, may not be comparable with the calculations of similar measures for other entities. See “Advisories – Non-IFRS and Other Financial Measures” contained within this press release.
4 Non-IFRS financial measure or ratio that does not have any standardized meaning as prescribed by International Financial Reporting Standards, and therefore, may not be comparable with calculations of similar measures or ratios for other entities. See “Advisories – Non-IFRS and Other Financial Measures” contained within this press release and in our most recently filed MD&A, available on SEDAR at www.sedar.com.
5 Throughout this news release, NGLs comprise all natural gas liquids as defined in National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities (“NI 51-101”), other than condensate, which is disclosed separately, and natural gas means conventional natural gas by NI 51-101 product type.
6 Excludes condensate volumes which have been reported separately.
7 Throughout this news release, light crude oil refers to light and medium crude oil product type as defined by National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”).
FOUR-YEAR PLAN UPDATE
Crew’s four-year plan, announced at the end of 2022 (the “Four-Year Plan”8), is designed to leverage our momentum and strong financial position to significantly increase size and scale through 2026. Successful implementation of this Four-Year Plan would enable the Company to meaningfully increase production, targeting growth in excess of 60,000 boe per day.
A key driver behind the Four-Year Plan is the expansion of our gas processing infrastructure, including the construction of an electrified 180 mmcf per day deep-cut gas plant in the Company’s Groundbirch area which is ideally located to supply natural gas to Canada’s future liquified natural gas (“LNG”) export facilities. The progression of our Groundbirch area development plan is dependent on all necessary permits being obtained, supportive commodity prices and securing the requisite financing while maintaining conservative debt leverage metrics. With current spot and future strip natural gas prices remaining depressed due largely to an ongoing global supply and demand imbalance, Crew plans to prudently advance the Four-Year Plan by monitoring price signals for additional hedging opportunities and continuing to explore a variety of project financing options.
OPERATIONS UPDATE & AREA OVERVIEW
NE BC Montney (Greater Septimus)
- Crew’s first quarter capital program concentrated on drilling surface holes for four (4.0 net) of a planned five (5.0 net) wells at the 4-32 pad, which are slated to be drilled through Q2 2023, and finalizing equipping activities on five wells at the 11-27 pad that were initially brought on for testing before the end of 2022.
- Average production from the five (5.0 net) extended reach horizontal (“ERH”) ultra-condensate rich (“UCR”) wells that that were completed on the 11-27 pad have produced wellhead rates of 1,463 mcf per day of natural gas and 575 bbls per day of condensate over the first 90 days of production (IP90).
- Engineering work and equipment purchases commenced for Crew’s condensate stabilization project at the Septimus Gas Plant in Q1/23, which is expected to increase the plant’s condensate capacity to 5,000 bbls per day and facilitate expanded development of our ultra-condensate rich area. Installation of the condensate stabilization equipment is expected to be completed in Q3/23.
- Construction was initiated on the Company’s North Septimus 2-24 UCR pad and North Septimus 6-18 UCR pad. These wells are planned to be drilled in the summer of 2023 following the drilling of the five new wells on the 4-32 pad.
Groundbirch
- The original three wells on the 4-17 pad have produced an average of 2.94 bcf of natural gas over 440 days, exceeding our independent reserve evaluator’s year-end 2022 proved plus probable type curve by 34% to date.
- The five (5.0 net) ERH wells in the second phase of development at Crew’s 4-17 pad continue to exceed internal type curve estimates, with an average per well raw gas production rate over 210 days (“IP210”) of 6,224 mcf per day.
- Engineering design is continuing for Crew’s Groundbirch plant which will expand our gas processing infrastructure and support future growth in our Four-Year Plan.
- The Upper Montney at Groundbirch is approximately 470 feet in thickness and has four prospective zones, all of which were tested through Crew’s 4-17 exploration and development program in 2021 and 2022, with each zone having generated promising initial commercial development rates. Drilling and testing results at Groundbirch have demonstrated the strength of our asset base, positioning the Company with decades of potential development runway.
- Crew currently holds 24 well permits in the Groundbirch area, with 60 well permit applications submitted and pending approval.
Other NE BC Montney
- The Company currently has six drilled but uncompleted ERH wells on the 15-28 pad at Tower, which are planned to be completed in Q3/23. The wells target light oil in the upper Montney “B” and “C” zones and feature lateral lengths of over 4,000 meters.
RISK MANAGEMENT PROFILE
To secure a base level of AFF2 to fund planned capital projects, Crew continues to utilize hedging to limit exposure to fluctuations in commodity prices and foreign exchange rates, while allowing for participation in spot commodity prices. As of May 8, 2023, the Company’s hedging profile includes:
- For the remainder of Q2/23, approximately 72,500 GJ per day at C$4.24 per GJ, or C$5.17 per mcf using Crew’s higher heat content factor, and 1,500 bbls per day of condensate at an average price of C$106.08 per bbl.
- For the second half of 2023, approximately 70,000 GJ per day at C$4.26 per GJ, or C$5.20 per mcf using Crew’s heat content factor, and 1,250 bbls per day of condensate at an average price of C$100.25 per bbl.
SUSTAINABILITY AND ESG INITIATIVES
Crew’s commitment to environmental, social and governance (“ESG”) initiatives remained a key focus in Q1/23 as we continue to invest in developing sustainable solutions to complement our corporate growth. Our Q1/23 ESG highlights include:
- Continued to demonstrate our strong commitment to safety with no recordable or lost time injuries in Q1/23.
- Directed a total of $3.5 million to abandonment and reclamation activities during Q1/23, with 11 wells cut and capped.
- Recorded no reportable spills in the first quarter of 2023.
- Invested 80 volunteer hours as well as financial contributions into community support initiatives and not-for-profit organizations in the quarter, geared towards helping the health, well-being, and economies of our local communities as part of our “Crew Cares” initiative.
In the summer of 2023, Crew anticipates releasing an updated digital ESG Report, which will be available for viewing at www.esg.crewenergy.com. The updated report will feature Crew’s latest sustainability initiatives and data performance tables.
OUTLOOK
- 2023 Guidance Reaffirmed – With persistent supply and demand imbalances across parts of North America and Europe leading to low natural gas prices, the Company reaffirms guidance which prioritizes light oil and condensate production over natural gas production and the maintenance of conservative leverage metrics. Crew’s full year 2023 net capital expenditures4 budget is forecasted to be $190 to $210 million, comprising plans to:
- Drill 15 (15.0 net) Montney wells
- Complete, equip and tie-in 12 (12.0 net) wells
- Maintain 2023 average production at 30,000 to 32,000 boe per day1 targeting an exit rate of 32,000 to 34,000 boe per day1
- Hold an inventory of ten (10.0 net) drilled and uncompleted UCR wells at year end 2023
- Achieve combined light oil and condensate production over 6,000 bbls per day in Q4/23, representing over 50% growth from Q4/22
- To date, Crew has not encountered any infrastructure damage or production curtailments due to the current wildfires in British Columbia and northwest Alberta. We continue to monitor the situation and will provide an update if conditions were to change.
- Q2/23 net capital expenditures4 are forecast at $28 to $32 million with average production of 28,000 to 30,000 boe per day1, a function of firm transportation restrictions, natural production declines and shutting in production due to low natural gas prices.
The following table sets forth Crew’s reaffirmed guidance and underlying material assumptions:
2023 Guidance and Assumptions9 | ||
Net capital expenditures4 ($Millions) | 190-210 | |
Annual average production1 (boe/d) | 30,000–32,000 | |
Adjusted funds flow2 ($Millions) | 240-260 | |
Free adjusted funds flow4 ($Millions) | 30-70 | |
EBITDA4 ($Millions) | 250-270 | |
Oil price (WTI)($US per bbl) | $75.00 | |
Natural gas price (NYMEX) ($US per mmbtu) | $3.20 | |
Natural gas price (AECO 5A) ($C per mcf) | $2.85 | |
Natural gas price (Crew est. wellhead) ($C per mcf) | $3.30 | |
Foreign exchange ($US/$CAD) | $0.74 | |
Royalties | 9–11% | |
Net operating costs4 ($ per boe) | $4.50–$5.00 | |
Net transportation costs4 ($ per boe) | $3.50–$4.00 | |
G&A ($ per boe) | $1.00–$1.20 | |
Effective interest rate on long-term debt | 6.5–7.5% |
2023 Sensitivities (Q2 to Q4) | AFF ($MM) | AFF/Share | FD AFF/Share | |||
100 bbl per day Condensate | $3.2 | $0.02 | $0.02 | |||
C$1.00 per bbl WTI | $1.2 | $0.01 | $0.01 | |||
US $0.10 NYMEX (per mmbtu) | $3.2 | $0.02 | $0.02 | |||
1 mmcf per day natural gas | $1.0 | $0.01 | $0.01 | |||
$0.10 AECO 5A (per GJ) | $2.3 | $0.01 | $0.01 | |||
$0.01 FX CAD/US | $2.6 | $0.02 | $0.02 | |||
ANNUAL SHAREHOLDER MEETING
Crew’s Annual General Meeting will be held in the Bow River Room/Bow Glacier Room, 3rd floor, 250-5th Street S.W., Centennial Place, West Tower, Calgary, Alberta on Thursday, the 11th day of May, 2023 at 3:00 p.m. (Calgary time). Further meeting details are available within the Company’s 2023 Information Circular, which can be viewed on our profile on SEDAR at www.sedar.com and on our website at www.crewenergy.com.
Crew’s world class Montney asset base, operational excellence and financial strength positions the Company to succeed in dynamic market conditions by providing optionality to adjust our capital program to optimize our production mix, ensuring long term sustainability. Our dedicated team is excited to continue delivering long-term shareholder value through innovation and adaptability, supported by a robust risk management program and proven strategy which enables us to achieve our goals while maintaining a safe and responsible operating culture. We express our gratitude to our stakeholders for their commitment and ongoing support of Crew in this dynamic environment.